Germany’s Chancellor has just landed in Beijing for his first official visit to China, but the excitement of this diplomatic milestone is overshadowed by a looming economic crisis. The trade imbalance between Germany and China has reached staggering proportions, and it’s sending shockwaves through Europe’s largest economy. Here’s the startling truth: last year, Germany imported goods from China worth more than double what it exported back, according to federal statistics. But here’s where it gets controversial—while some argue this is a natural outcome of global trade, others blame it on China’s ‘massive’ subsidies and undervalued currency. Is this a fair competition, or is China playing by its own rules? Let’s dive in.
Before departing for Beijing, Chancellor Friedrich Merz emphasized, ‘We want a partnership with China that is balanced, reliable, regulated, and fair.’ But achieving this balance won’t be easy. The numbers are alarming: in 2025, Germany imported €170.6 billion worth of goods from China, an 8.8% annual increase, while its exports to China plummeted by 9.7% to just €81.3 billion. Jürgen Matthes, head of International Economic Policy at the German Economic Institute (IW), warns that this imbalance is ‘eroding the core of German industry,’ particularly in the car, machinery, and chemicals sectors. Matthes argues that China’s price advantages can’t be explained solely by innovation and efficiency—a claim Beijing disputes, insisting its subsidy policies are transparent and compliant with international trade rules.
And this is the part most people miss: the trade deficit isn’t just a German problem; it’s part of a broader ‘China shock’ hitting the entire EU. The pandemic and Russia’s invasion of Ukraine have driven up production costs in Europe, while China’s prolonged deflationary phase, fueled by over-investment in manufacturing, has created massive overcapacity. This has left European leaders scrambling to offset the impact of cheap Chinese goods, all while navigating the aftermath of former U.S. President Donald Trump’s disruptive tariff policies. Can Europe afford a trade war with both China and the U.S.? Noah Barkin, a senior fellow at the German Marshall Fund, thinks not. ‘No one in Europe wants a two-front trade war with the world’s two superpowers,’ he says. Yet, Europe does have leverage: China desperately needs markets for its excess goods.
But the situation is particularly dire for Germany, once the economic powerhouse of Europe. Its iconic car industry, now struggling to transition to electric vehicles, is shedding jobs—a field where China dominates. Business groups are urging Chancellor Merz to take a firm stance during his visit, addressing issues like unfair competition and export controls on critical rare earths. However, Merz’s free-trade instincts are colliding with global realities. While France pushes for protectionism, Germany remains skeptical, caught between its past policy of ‘change through trade’ and the need to de-risk its economy. Former Chancellor Angela Merkel was often criticized for prioritizing economic ties with China over human rights concerns, and now those deep dependencies are hard to untangle. ‘It would be a mistake for us to seek to decouple ourselves from China,’ Merz said before his departure, highlighting the delicate balance Germany must strike.
The EU has launched anti-dumping cases against China and proposed measures to boost domestic production, but experts like Barkin argue that Europe’s trade defense tools, such as tariffs, are less flexible than those of the U.S. So, what’s the solution? Should Europe double down on protectionism, or is there a middle ground? As Chancellor Merz navigates these complex talks, one thing is clear: the outcome will shape not just Germany’s economic future, but Europe’s place in the global trade order. What do you think? Is Germany’s approach too cautious, or is it a pragmatic response to an impossible situation? Let’s hear your thoughts in the comments!
